Zimbabwe govt moves to counter Paynet's 'extortion'
By Business Times | 11 Jul 2019 at 08:12hrs
Government has terminated its long relationship with Mauritian-owned payment solutions firm Paynet and introduced a manual system after ties were cut over outstanding fees and charges last month.
Last month, Paynet announced an abrupt termination of services to Zimbabwean banks upon demanding payment in hard currency and over a US$ 500 000 debt.
Speaking to NewZimbabwe.com Business Wednesday, Finance Ministry accountant general, Daniel Muchemwa indicated there has been progress and a new platform may be in place before civil servants are paid this month.
"Paynet announced that transfers were not going to be processed without giving us due notice. They were demanding payment in foreign currency for their services but I vowed that we were not going to meet such a demand.
"In June we had to use the manual payment system to process salaries as we had no option considering that Paynet, as the major service provider, failed to respect us as clients," said Muchemwa, adding that government has since racked how the Paynet system works.
"We agreed that all they were providing was technology. So our team managed to craft a system which will be interfaced with the Reserve Bank of Zimbabwe (RBZ) and, moving forward, it will be cheaper."
Recently, local banks also announced that they are working towards the funding and development of a system to be known as Bank File Interchange System (BFIS) to be placed under the control of the Bankers Association of Zimbabwe.
Government last month encountered problems after Paynet withdrew its services demanding payment in hard currency leaving civil servants struggling to access their salaries. Some private firms that relied on Paynet also struggled to process workers' salaries.
Most Zimbabwean banks use Paynet, which is owned by Mauritian financial services provider Payserv Africa, to process interbank transactions.
As part of the arrangement, the local banks are supposed to pay the service provider in US$. But a standoff between banks and Paynet has resulted in service disruption.
Locally, Paynet enjoyed a customer base of 5 800 corporate clients and 2.5 million beneficiaries and its suspension affected salary payments for over half a million workers including pensioners who endured delays.
Payserv Africa and Paynet Zimbabwe, yesterday said in an announcement to shareholders they have instructed their Zimbabwean lawyers, Titan Law, to commence legal action against Baz and its members.
"Cambria announces that further to its announcement of 12 June, Payserv Africa Limited and Paynet Zimbabwe (Pvt) Ltd have instructed their legal practitioners in Zimbabwe, Titan Law, to commence legal action against the Bankers Association of Zimbabwe and related parties for anti-competitive practices seeking damages of US$100 million," the company, listed on the LSE's AIM market for smaller, growing entities, said yesterday.
"Payserv Africa and Paynet Zimbabwe continue to engage individually with suspended banks on the Paynet platform as well as the Reserve Bank of Zimbabwe (RBZ) to find a solution to an impasse which has resulted in the suspension of services."
Cambria lawyer Gerald Mlotshwa confirmed the legal action against Baz and banks. "We can confirm that we have received instructions from our client (Cambria) to sue the banking association and its members for the amount indicated and reasons stated," he said. "The pertinent pleadings will be filed soon."
Baz was not available for comment.
On June 12, Cambria had announced that Paynet's service to all its bank customers in Zimbabwe had been suspended after close of business on June 10 due to a collective refusal to pay historical and contracted pricing to Payserv Africa in US dollars.
"The company lost US$170 000 providing services to banks in March and April 2019. Banks collectively owe Payserv Africa over US$470 000 for over four million transactions concluded since 1 May 2019. The company cannot allow further accumulation of possible losses … Collectively in 2018, banks netted over US$22 million in profits via charges to its account holders for services provided by Paynet," Cambria said then.
"Despite this highly profitable relationship with Paynet, banks have stonewalled the company's attempt to maintain the US dollar value of its services following the devaluation of the currency to RTGS5,86:1 US dollar on the interbank market."
Cambria wants the money to be paid in Mauritius for the debt, which was accrued between May 1 and June 10, 2019.
On April 25, Payserv Africa wrote a letter to the banks asking them to indicate their intention to pay and accept the invoice in United States dollars for the period between May 1 and June 10.
A meeting was then held on May 2 between Baz, together with the Interbank Operation Committee, and with representatives of Payserv and Paynet to try to resolve the issue.
On May 14, a letter was written by Payserv to the banks following the May 2 meeting again asking them to commit to pay in US dollars and indicate their intention to do so.
Paynet then sent an invoice to the banks on May 15 seeking an indication to pay and accept the invoice by the service provider.
Payserv and Paynet representatives further went to meet RBZ governor John Mangudya after the May 15 notice.
Sources said Payserv and Paynet representatives, in the meeting with Mangudya and other central bank officials, discussed the issue of whether it would be legal to pay externally for Paynet services.
"Upon explaining the new arrangement to the governor, he unequivocally said he had no objection to the payment of these invoices and would issue a directive through the head of exchange control," a source who attended the meeting said.
"This solution would have left Paynet's contract with the banks unchanged and the price which has been quoted for 10 years in US dollars, unchanged. It would have also meant that each bank would be individually responsible to pay Payserv directly in US dollars or be suspended.
"The suspension of a particular bank would not create a systemic risk as Payserv would allow suspended banks to receive and distribute funds from active banks."
On May 28, Paynet said that it was going to selectively suspend some services to the banks that had not indicated their intention to pay in US dollars. Some of the banks had, however, agreed that they were prepared to pay using the greenback. The service provider only suspended some of the services to banks to avoid the systemic disruption of the banking sector.
However, some banks reacted by disconnecting their platforms from the Paynet server and closing their gateways to other banks, risking in the process financial disintermediation. After the disconnection, banks started to use a manual excel system which is unencrypted and hence risky – based on the Paynet format.
"Banks decided to act as a cartel, or were browbeaten to do so, and as a group spent 45 days deliberating on how to replace Paynet services knowing they had no intention to pay the US dollar invoices," a source said.
"Rather than negotiate they convinced themselves and now they are trying to convince the public they have a solution to the chaos they have created."